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Desk ItemWN p COUNCIL AGENDA REPORT DATE: JUNE 16, 2016 TO: MAYOR AND TOWN COUNCIL FROM: LAUREL PREVETTI, TOWN MANAGER MEETING DATE: 06/21/16 ITEM NO: 17 DESK ITEM SUBJECT: RECEIVE THE REPORT AND RECOMMENDATIONS FROM THE AD HOC CITIZEN COMMITTEE, AND DIRECT STAFF TO BRING FORWARD THE FOLLOWING ITEMS FOR TOWN COUNCIL CONSIDERATION AT ITS AUGUST 2, 2016 MEETING: A. PREPARE A DRAFT RESOLUTION TO PLACE A GENERAL PURPOSE, HALF -CENT SALES TAX WITH A 25 -YEAR SUNSET ON THE NOVEMBER 2016 GENERAL ELECTION BALLOT. B. PROVIDE A DRAFT FRAMEWORK FOR A CITIZENS OVERSIGHT COMMITTEE TO ENSURE ALL TAX REVENUES FROM A POTENTIAL REVENUE MEASURE ARE SPENT IN A MANNER CONSITENT WITH THE BALLOT MEASURE. C. PROPOSE A DRAFT LIST OF CAPTIAL IMPROVEMENT PROJECTS AS POTENTIAL EXPENDITURES SHOULD THE MEASURE BE SUCCESSFUL. REMARKS: After the Staff Report was distributed on Thursday, June 16, 2016, the attached public comments were received (Attachment 2). Attachment 1 (Previously distributed with Staff Report on June 16 2016): 1. Los Gatos Community Priorities Survey Presentation (May 31, 2016) Attachment 2 received with this Desk Item: 2. Public comments received after 11:00 a.m. Monday, June 20, 2016 PREPARED BY: CHRISTINA GILMORE Assistant To The Town Manager Reviewed by: Assistant Town Manager Town Attorney Finance SACOUNCIL REPORTS\2016 \06- 21 -16\Ad Hoc Citizen Committce\Dmk Item - Ad Hoc Citizen Committee.doc Subject: FW: Submission as a Desk Item for Council Meeting June 21 Attachments: June 212016 Meeting.docx From: Lee Fagot [mailto:fagolCalgte.net] Sent: Monday, June 20, 2016 4:09 PM To: Town Manager Cc: Clerk Subject: Submission as a Desk Item for Council Meeting June 21 Dear Ms. Prevetti , Attached is a Desk Item for tomorrow's meeting I am submitting. I will be attending and also plan to speak during the Public Comments Section regarding the Ad Hoc Committee Report. Thank you and regards, Lee Fagot Madam Mayor and Council Members June 21, 2016 Thank you for the opportunity to represent the townsfolk in this endeavor to find additional revenue sources for Los Gatos Government. I appreciate the Council reaching out to get this committee's perspective. And I also respect the work the Town Staff put into providing support and information to the Committee. While the conclusion to move forward with additional taxing to help fill in for the budget deficits makes good fiscal sense, I believe, however, that this committee should have also looked first at how we could also have been charged with developing some efficiencies in current spending and looked strategically at how we further reduce expenses. The currently published 2015/16 ADOPTED BUDGET shows a $400k shortfall of revenue to expenses. Further, we are still facing a more than $43M unfunded pension liabilities alone. This is more than the original, approved total revenue projections for the Town for this year and is on top of the almost 11 % annual contribution being made now to CALpers to just keep the deficit from growing. I therefore suggest that just as the Council solicited support from citizens to form this Ad Hoc Citizens Committee to help with raising additional revenue for the Town, this committee should also provide not just oversight to how these new taxes are spent but in fact how our Town budget is managed. I would challenge that the task is only partially completed — full budget oversight and input with help from citizens should benefit the Town and be an additional resource for this Council and Staff. I therefore suggest that this Ad Hoc Citizens Committee be formally integrated with the Town's Budget Oversight Committee, which is made up of staff, consultants and some Council members and currently does NOT have any citizen input except challenges thru the 3 Minute Public Comments section of the Budget Oversight Committee . The fact that 192 Townsfolk spent more than 20 minutes on average answering a recent phone survey says they see road repairs, parking, traffic and Downtown beautification as critical issues. Again, I appreciate the Council reaching out to the community to help with finding ways to raise additional revenue for these projects, but I challenge that this is only part of a full review of a budget and balance sheet. Lets move our work from just being reactive to instead being more proactive. Lets bring additional citizen resources and perspective to help with this very serious issue. We are not keeping our infrastructure current, we are not managing our resources fully and we are growing our deficits. Lets not just ask citizens and our visitors to pay more. Lets see what we can also do to reduce expenses. Respectfully, Lee Fagot Subject: FW: Unfunded Liabilities and How to Pay for Them From: Jak VanNada [mailto:jvannadaCobgmail comj Sent: Monday, June 20, 2016 9:44 PM To: Council Subject: Unfunded Liabilities and How to Pay for Them Council - persons: I will also be speaking to this at tomorrow night's meeting, but in essence, it is a way to pay for unfunded liabilities through a 1/4% sales tax. A group of us will be meeting with Steve Conway soon to discuss this in much more detail (we have a 12 page document on the liabilities, so this is an abbreviated, abbreviated version.: -)) Jak Jak Van Nada UNFUNDED LIABILITIES HOW TO FUND THEM — JAK VANNADA — 6 -20 -16 1. The 3 citizens of the Citizens Ad Hoc Committee noted in the first meeting that we were hesitant to raise taxes without first looking at costs. 2. As of June 30, 2014, the Unfunded Accrued Liabilities (UAL) have risen from $9 million in 2003 to over $49 million in 2014, a rise of 544 %. 3. Even though CalPERS has had 20 year returns averaging over 7.5% in the past, our unfunded liabilities have continued to rise to at least $49,000,000 and, we believe, will go substantially higher after this June 301h 4. CalPERS reevaluates the status of the unfunded liabilities every two years. In 9 days we will reach the end of the second year. Soon we are going to find out how they did for the past two years. However, at this point, we know that for the fiscal year ending in 2015, their return was 2.4 %, or-5.1% short of their longterm investment goal. We also know that 6 months into the second year, the return was at -.01%, or- 7.51% short of their goal. We also know that up to June 17 of this year, the stock market was up only 1.33% This would suggest that we will have a significant upward bump to our unfunded liabilities coming in addition to the bumps they now will have to impose to reduce the overall unfunded liabilities across the state. 5. The increase in the UAL does three things a. Increases required contributions b. Reduces the funded percentage c. Passes the debt built in the past 13 years forward to the next generation to pay. 6. Several changes to the pension plan have been made by the town and by CalPERS to help communities reduce UAL over 20 years. These changes are, in our opinion, too little, too late. The change to be made by CalPERS will increase the payments due from us, very possibly for the next 20 years. 7. CalPERS will be raising our contribution level very soon. This will require that we raise revenues and /or cut costs if we do not address these two items very soon. Personnel, safety, and infrastructure expenditures are what will suffer. 8. These increases are treated as real debt In the private sector, and only recently has it been required that local municipalities and the state record this as debt on their balance sheets. This will get the attention of budget watchers. I don't know how or if it could affect our credit rating. The only way to avoid cutting costs and raising revenues would be for CalPERS to have extraordinary investment returns, and in the past 11 years that hasn't happened. We're in the hole today by - $49,000,000. In another 9 days, it will be worse. 9. We see two possible choices to fund the UAL: a. Reduce operating costs and other spending b. Increase tax revenues or find another funding source 10. The premise of this memo is that CalPERS has used an unrealistically high discount rate of 7.5% causing them to have to invest in riskier stocks and bonds. Their current plan is going to increase our liability payments for many years to come. The council needs to take a leadership role now and bite the political bullet. We need to get the unfunded dollars down to a level that doesn't dominate our budget. We CANNOT pass this onto our children and grandchildren. We need to tax ourselves and very likely, cut costs. 11. 1 voted initially for a'' /z % sales tax for Los Gatos after much discussion, and I thought the sales tax should go for improving the infrastructure of the town. With the information we had at that time, it sounded like the bulk of the dollars generated if the VTA %% sales tax proposal passed were going to San Jose and BART, and little was coming to us. That is no longer appears to be the case. 42: It was subsequent to our last meeting of 5/31 where I "discovered" the unfunded liabilities (UAL). With a more complete understanding of the UAL, I changed my opinion from using tax revenues for infrastructure to paying down a rapidly growing debt. And, as best I can tell, the VTA will partially or possibly fully fund much of the infrastructure we require. We shouldn't compete with their measure for infrastructure dollars. With more information, I have changed my opinion and think we should seek no more than '/4 % for our sales tax measure. Those additional tax receipts should be used to pay down liabilities. 13. As I mentioned previously, I believe the Unfunded Accrued Liabilities will far exceed $49,000,000 once the two year period ending 6/30/16 has been reevaluated by CaIPERS. 14. If you take no action to cut costs or increase revenues, our unfunded liabilities will continue to rise for years that will be considerably more than we owe now. 15. How is Los Gatos going to pay for this increased cost? If you don't tackle this now, the problem will pass on to our kids, and then to their kids. We have kicked this can down the road long enough. 16. Let me say that I am for regional planning and I think VTA tax initiative is needed for the benefit of the whole bay area. But Los Gatos too has a big need to cut down our unfunded liability debts. 17. The VTA requires a 2/3 vote. What if it does not pass? If we don't pass our own tax measure, we will then need revenue for the infrastructure AND for the unfunded accrued liabilities. We should not take that chance. This November may be the best chance in years to come to pass our own sales tax initiative In two years, we could be at or near a recession, making it impossible to pass any tax initiative. Additionally, in less than 10 years, if the north 40 retail comes on line, we will capture more taxes from outside of Los Gatos and additionally, capture sales tax leakage dollars. 18. Sales tax partially comes from Los Gatos citizens; however, 30% of the tax dollars generated come from visitors to this destination town. 19. 1 voted for a general tax to fund a recurring revenue source that would maintain the quality of life in Los Gatos. A general tax is better because it is more likely to pass than a specific tax. Additionally, if the VTA doesn't fund all that we need at certain times, we will have the flexibility to use that money temporarily to fix a more urgent issue. You can and should control the spending with a skilled oversight committee. 20. You might ask: "How does paying down a pension debt improve and /or maintain the quality of life in Los Gatos ?" 21. Think what would happen if we defaulted and filed bankruptcy like Stockton and San Bernardino? These two cities were permitted by law to reduce their pension liabilities by 60 %, but both ended up paying off the pension debt in full. Had they reduced the pensions, the outflow of disenfranchised employees would have gutted each city, and there could have been ramifications in other cities that had similar liability problems. Paying debts incurred is another way to maintain the quality of life. ham: / /www. sacbee. com/ news / politics- aovernment/article3995709. html) 22. Granted, you cannot see it, feel it or touch it like you can infrastructure improvements. But if the polls are correct, and the VTA lives up to their promises, the infrastructure will be taken care of. We have to pay our own debts down, and now is the time to start that process. A' /<% sales tax is a good start. I hope that you will see this as a tough decision, but the right decision.